Do’s and Don’ts

DO’s and DON’Ts of Trading and Investing in the Stock Market

Your Code of Conduct in the Financial Arena

The stock market is a dynamic universe where emotions, strategy, risk, and reward meet. It offers immense opportunities for wealth creation, but only to those who treat it with respect, patience, and discipline. Whether you’re a beginner or a seasoned trader, following a strict trading code can safeguard you from avoidable blunders and guide you through volatile times.

Below is a comprehensive list of Do’s and Don’ts, including a special section on modern-day scams and frauds to help you stay vigilant in today’s digital-first, high-noise financial world.

✅ DO’s – The Path to Sustainable Success

  1. Treat Trading as a Business, Not a Gamble

    Approach the market with a well-thought-out plan and discipline. Treat it like running a business – with objectives, capital allocation, strategies, and risk controls.

  2. Follow Robust Money Management Principles

    Never allocate all your capital to a single trade or asset. Divide your investment capital into at least 10 equal parts and limit your exposure per stock to just one part.

  3. Diversify Sector-Wise

    Don’t overconcentrate in one sector (e.g., only banking or only IT). Spread your investments across industries to reduce sector-specific risks.

  4. Use Stop-Loss and Target Mechanisms

    Always define how much you are willing to lose and the profit you aim to achieve. Use trailing stop-losses to protect gains in trending markets.

  5. Trade with Verified Brokers Only

    Partner only with SEBI-registered brokers. Do your due diligence before trusting anyone with your capital.

  6. Keep Emotions Out, Logic In

    Greed and fear are your worst enemies. Stick to your trading system, irrespective of temporary market noises.

  7. Stay Informed, Stay Educated

    Continuously upgrade your knowledge. Read, attend webinars, understand global cues, and analyze economic indicators.

  8. Document and Review Your Trades

    Maintain a trading journal. Regular analysis of past trades helps improve strategy and removes recurring errors.

  9. Be Disciplined and Patient

    Success in trading is not overnight. Stick to your rules even during dull or loss-making phases. Discipline compounds returns.

  10. Plan Before You Trade, and Stick to It

    Define your entry, exit, and position size in advance. Never alter your strategy in the middle of the trade due to emotions or impulsive news.

❌ DON’Ts – The Pitfalls to Avoid at All Costs

  1. Don’t Invest Money You Can’t Afford to Lose

    Never put your emergency funds, children’s education money, or borrowed funds into the market. It can lead to mental stress and financial ruin.

  2. Avoid Overtrading

    Frequent trades without a strategy usually lead to brokerage losses and emotional fatigue.

  3. Never Follow Tips or Rumors Blindly

    Don’t act on WhatsApp forwards, Telegram channels, SMS tips, or TV noise. Most of these are unverified and potentially manipulative.

  4. Don’t Get Emotionally Attached to Stocks

    Stocks don’t love you back. Exit when your rules say so — not when your emotions say so.

  5. Don’t Average Down in Falling Stocks Blindly

    Averaging without understanding the reason for a fall can multiply your losses.

  6. Don’t Ignore Risk Management

    The primary objective is to preserve capital. If you lose it all, there’s no capital to trade with again.

  7. Avoid Trading Without a Plan

    A random approach leads to random results. Set your rules and never trade impulsively.

  8. Don’t Participate in Dabba Trading (Illegal Trading)

    Dabba trading is unregulated and illegal. You are putting your entire capital at risk without legal protection.

  9. Don’t Chase the Market Out of FOMO

    Fear of missing out can push you into dangerous trades. Let the trade come to you; don’t chase the trade.

  10. Don’t Skip Taxes or Hide Income

    All stock market gains are taxable. Avoid shortcuts; declare your income transparently to stay legally safe.

⚠️ Beware of Modern-Day Stock Market Frauds & Scams

With the rise in digital platforms, so have online scams, manipulative practices, and financial frauds. Stay cautious of the following:

🔴 Modern DON’Ts – What to Avoid in Today’s Market

  1. Don’t Share Your Login Credentials

    No legitimate advisor or broker will ask for your password or OTP. Sharing it can result in direct fraud.

  2. Don’t Join Pump-and-Dump Groups

    Many Telegram/WhatsApp groups manipulate penny stocks. You’ll end up being the last buyer in a trap.

  3. Avoid Screen Sharing or Remote Access Tools

    Fraudsters often ask clients to download screen-sharing tools. This can lead to direct access to your bank and trading accounts.

  4. Don’t Trust Fake Social Media Influencers

    Many profiles impersonate SEBI analysts or show fake profits. Always verify identities from official SEBI websites.

  5. Don’t Respond to Lottery or Jackpot Trades

    These messages promise 200–300% returns in a few days. These are phishing attempts or scam setups.

🛡️ How to Stay Safe and Succeed

  • ✅ Maintain strong passwords and enable 2FA (Two-Factor Authentication)

  • ✅ Regularly check your demat statements and ledgers

  • ✅ Stay updated with SEBI and NSE/BSE circulars

  • ✅ Report any suspicious activity to SEBI or your broker immediately

🔚 Final Words: Follow the Market Rules – and the Market Will Reward You

The stock market rewards those who are disciplined, informed, and cautious. It punishes those who act on greed, hearsay, and impatience. Follow these rules like a soldier follows orders, and you’ll not only protect your capital but also grow it systematically.

💬 “In trading, what is comfortable is rarely profitable.” – Robert Arnott